Last week, the FCC released its second major order in the Lifeline reform proceeding: Second Further Notice of Proposed Rulemaking, Order on Reconsideration, Second Report and Order, and Memorandum Opinion and Order (hereinafter “Second Order and NPRM”). As the lengthy title suggests, the FCC adopted some new rules, seeks comment on a multitude of additional proposed reforms, and resolved a number of pending appeals and petitions. Below, we provide a high-level overview of the new rules and proposals for further reform. We will provide a more in-depth analysis of many of these issues in a series of posts on our Lifeline blog, the Lifeline Law Advisor found at www.lifelinelaw.com.

New Rules

The FCC adopted a modest number of changes to its rules governing the Lifeline program. These changes are summarized below.

Tribal Map in Oklahoma Changed to Exclude Oklahoma City: The most significant of the new rules is a change to the FCC’s long-standing interpretation of Tribal land boundaries in Oklahoma. Due to its unique history, most of Oklahoma has been considered Tribal land, a conclusion with which the Oklahoma Corporation Commission (which regulates telecommunications services in Oklahoma) had agreed. Although the FCC did not change the definition of “Tribal lands” in its rules, it significantly changed the map that is intended to correspond to its definition. In doing so, the FCC recognized that it was departing from the interpretation that its staff had disseminated to industry, and on which it had disbursed Lifeline funding for years. The FCC has provided 180 days after publication of Second Order and NPRM in the Federal Register for the industry to adjust to the new boundaries, although it is also considering further changes to the Tribal lands map in Oklahoma. See discussion of further proposals below.

Lifeline Resale Eliminated: Lifeline resale refers to an arrangement where a wholesale carrier that is designated as an eligible telecommunications carrier (“ETC”) receives Lifeline support for lines that are resold to eligible customers by a non-ETC at a price that reflects the Lifeline discount. Typically, the wholesale provider has no relationship with the ultimate retail subscriber, and therefore is requesting Lifeline subsidies for subscribers for which it has not reviewed eligibility documentation. The non-ETC, on the other hand, is not subject to the same audit and oversight measures as the ETC. The FCC initially proposed prohibiting this resale practice in a 2012 rulemaking notice, citing concerns about the lack of oversight of the non-ETCs. The impact of the elimination of Lifeline resale on most service providers is expected to be insignificant because the resale business model has been in decline in recent years, and has been used mostly in the wireline context. This elimination of Lifeline resale will take effect upon approval of the change by the Office of Management and Budget (“OMB”).

Uniform Snapshot Date for Subsidy Claims: The FCC has adopted the first day of the month as the uniform date that ETCs must use to calculate their Lifeline subsidy claims. Currently, there are varying practices among ETCs: some use a “snapshot” date of their own determination and some claim a subsidy for any subscriber who received service at any point in the month. The FCC’s new rule will require all ETCs to use the snapshot method, and specifies that the snapshot should be taken on first day of each month. It is not clear whether this method is intended to allow ETCs to count subscribers who were enrolled throughout the preceding month and may have de-enrolled on the last day of that month. Likewise, it is not clear whether an ETC should claim a subscriber who enrolls on the first day of a given month but de-enrolls on the first day of the subsequent month. That is, should the ETC claim Lifeline support for one or two months? The new rule will take effect 30 days after publication of the order in the Federal Register.

Proposals for Further Rule Changes

The bulk of the Second Order and NPRM is focused on a series of proposals and questions about possible further reforms to the Lifeline program. We discuss a number of the most significant proposals below, and will be examining these and others in more detail in the weeks to come in blogs posted on the Lifeline Law Advisor.

Proposal—Provide Lifeline Subsidies for Broadband: Lifeline is the only federal universal service program that does not currently fund broadband services. The FCC proposes to change this by making broadband eligible for Lifeline support. After reviewing the many ways in which broadband is a necessity for modern Americans, including its use for schoolwork, healthcare, and public safety, the FCC proposes that both fixed and mobile broadband service should be supported by the Lifeline program. However, it also proposes that recurring support be limited to the current Lifeline subsidy level of $9.25 per month (plus an additional $25 per month in Tribal areas) that is used to support voice service. The only additional support contemplated is a one-time reimbursement to cover up-front broadband connection costs for fixed broadband service.

Proposal—Minimum Service Standards: One of the FCC’s central proposals is to impose minimum service standards for both voice and broadband services that are supported by the Lifeline program. Although it does not propose specific minimums, the FCC considers the current standard wireless service package inadequate (typically, 250 minutes per month for the $9.25 subsidy) and suggests that more minutes be required or that the monthly support amount be reduced for voice. The Second Order and NPRM does not propose specific broadband service standards, but asks whether the standard developed in the FCC’s Connect America Fund proceeding could be adopted, which is at least 10 Mbps for downloads and 1 Mbps for uploads. It also asks whether minimum service levels should be ratcheted up over time.

The FCC concludes that such requirements are necessary based on a belief that current Lifeline services are not generous enough, and that current rules do not “extract the most value” out of Lifeline service providers. Specifically, the FCC concludes that: (1) “[u]nlike competitive offerings for non-Lifeline customers, minutes and service plans for Lifeline customers have largely been stagnant;” (2) the cost of providing voice service “has declined drastically;” and (3) ETCs “continue to receive USF support above their costs.”

These conclusions seem to be based on questionable assumptions. The FCC fails to recognize that a baseline service package of 250 minutes that is entirely covered by the $9.25 Lifeline subsidy (offered by many wireless ETCs) has become more expensive to provide, not less, as new FCC rules have drastically increased compliance costs while the subsidy amount has not increased, even for inflation. Indeed, the $9.25 subsidy was based on an average of the varying rates in place in 2011, when Lifeline service packages commonly provided 90 minutes per month. Following the 2012 Lifeline Reform Order, FCC staff informally imposed a requirement that all wireless ETCs offer 250 minute plans, meaning that Lifeline ETCs have been offering service packages with almost three times the number of minutes as those on which the subsidy was based. Furthermore, the FCC offers no support for its assertion that the cost of providing voice services has declined in recent years, or that non-Lifeline subscribers have gotten more minutes for the same or less money in the same time frame. While there was a drastic decline in the cost of providing wireless minutes beginning in the 2005 timeframe, it is not clear that that decline has continued at the same or similar pace. In the end, the FCC should recognize that in order for Lifeline providers to offer a viable service, minimum service requirements must reflect providers’ costs or else customers will be required to provide out-of-pocket payments for services. Filings made with the FCC reflect that such payments are problematic for the very poorest within the population that the Lifeline program was meant to serve, as evidenced by the results of the FCC’s broadband pilot program, which failed to enroll a significant number of participants in large part because it required out-of-pocket payments by subscribers.

Proposal—National Eligibility Verifier and Voucher or PIN: The Second Order and NPRM proposes transferring the responsibility of determining the eligibility of Lifeline customers away from Lifeline service providers and to a third-party entity. It suggests a number of advantages to this approach: (i) removing the perceived conflict of interest inherent in providers determining whether customers are qualified to receive their service; (ii) lowering costs to the program and ETCs; (iii) and increasing efficiency by connecting Lifeline eligibility to other benefit programs. Specifically, the FCC proposes a nationwide entity that would verify the eligibility of all Lifeline subscribers. It asks whether such a verification system should be built to leverage databases that exist for other benefits programs, such as the Supplemental Nutrition Assistance Program (often referred to as “SNAP”). Recognizing the significant delay that will likely attend a third-party verification process, the FCC also asks whether ETCs should be able to enroll “pre-qualified” subscribers in Lifeline-supported service while they await final approval from the verifier. The FCC asks what type of documentation should be collected and kept by the verifier, and whether it should also be made responsible for annual recertification efforts.

Alternatively, the FCC asks whether more substantial coordinated enrollment with SNAP would eliminate the need for ETCs to verify eligibility and possibly reduce the potential need for a national Lifeline verifier. Along the same lines, it also asks whether Lifeline should provide transferable support (with benefits linked to a card or unique PIN) directly to customers instead of tying support to the customer’s relationship with his or her chosen Lifeline provider.

Proposal—Sending Texts to Count as Usage: The 2012 Lifeline Reform Order instituted a rule requiring certain Lifeline subscribers (i.e., those receiving service for which an out-of-pocket payment is not assessed or collected) to use the service at least once every 60 days or lose their Lifeline support. While that order envisioned a phone call as the standard means of using a Lifeline phone, ETCs have repeatedly asked that the FCC include text messaging within the definition of “use.” The Second Order and NPRM proposes to do just this, although it denies a request to also count receiving a text message as usage. Furthermore, the FCC asks “whether the distinctions between text messaging, voice, and email should remain relevant, for the purposes of usage rules,” signaling the recognition that support for broadband services will likely necessitate an expansion of this definition as well. The FCC has also proposed shortening the usage period to require subscribers to use the service at least once every 30 days.

Proposal—Streamlining the ETC Designation Process: The FCC devotes several paragraphs of the Second Order and NPRM to questions regarding the process of being approved to provide Lifeline-supported service. Currently, a company wishing to provide Lifeline-supported wireless service in multiple states must undergo arduous ETC designation proceedings in each state in which it seeks to operate, perhaps in addition to an FCC designation process depending on the state involved, and if it does not have its own telecommunications network, must also have a compliance plan approved by the FCC’s Wireline Competition Bureau. The Bureau has not approved a Lifeline compliance plan since December 2012. Recognizing that this system is effectively broken, the Second Order and NPRM asks whether it should create a single streamlined ETC-designation process, modify the compliance plan process, or abandon altogether the prohibition on non-ETCs providing Lifeline-supported service. These proposed changes are designed to increase the number of non-traditional Lifeline providers able to enter and compete in the market.

Initial comments on this NPRM will be due 30 days after its publication in the Federal Register, while reply comments will be due 60 days after publication. We will announce on the Lifeline Law Advisor when the Federal Register publishes the Second Order and NPRM.